COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

The Company is a party to various legal proceedings, disputes and claims arising in the course of its business, including those that arise from interpretation of federal and state laws and regulations affecting the natural gas and crude oil industry, personal injury claims, title disputes, royalty disputes, contract claims, contamination claims relating to oil and gas exploration and development and environmental claims, including claims involving assets owned by acquired companies and claims involving assets previously sold to third parties and no longer part of the Company’s current operations. While the ultimate outcome of the pending proceedings, disputes or claims, and any resulting impact on the Company, cannot be predicted with certainty, the Company believes that none of these matters, if ultimately decided adversely, will have a material adverse effect on the Company’s financial condition, cash flows or results of operations. The Company’s assessment is based on information known about the pending matters and its experience in contesting, litigating and settling similar matters. Actual outcomes could differ materially from the Company’s assessment. The Company records reserves for contingencies related to outstanding legal proceedings, disputes or claims when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated. The Company reassesses the probability and estimability of contingent losses as new information becomes available.

Commitments

The following is a schedule of minimum future payments with commitments that have initial or remaining noncancelable terms in excess of one year as of December 31, 2019:



Year Ending December 31,	Sand Supply Agreement
	(in millions)
2020	$	18
2021	18
2022	18
2023	18
2024	18
Thereafter	23
Total	$	113

The Company leases office space in Oklahoma City, Oklahoma from an unrelated third party. Amounts prior to January 1, 2018, include rent expense related to the Company’s corporate office located in the Fasken Center in Midland, Texas. On January 31, 2018, the Company completed its acquisition of the Fasken Center office buildings.

The following table presents rent expense for the years ended December 31, 2019, 2018 and 2017:



	Year ended December 31,
	2019		2018		2017
	(in millions)
Rent Expense	$	3	$	1	$	2

Agreement with Trafigura Trading LLC

The Company has entered into a firm commitment oil purchase agreement with Trafigura Trading LLC (“Trafigura”) in which the Company agreed to sell and deliver a firm quantity of 25,000 barrels of crude oil per day to Trafigura during the term of the agreement. Under this agreement, which has a seven-year term beginning on August 1, 2018, the price per barrel of oil paid to us by Trafigura is based on the average of the published settlement quotations for NYMEX CMA, as adjusted for different delivery methods and periods. If during the term of the agreement the Company fails to deliver the required quantities of oil for any month other than for specified force majeure events, the Company has agreed to pay Trafigura a deficiency payment equal to any unfavorable difference between the contract price and the spot price, multiplied by the deficiency volume.

Agreement with Plains Marketing LP

In July 2019, the Company’s wholly-owned subsidiary, Energen Resources Corporation (“Energen Resources”) entered into a long-term crude oil sales agreement with Plains Marketing LP (“Plains”) pursuant to which, among other things, the Company’s existing agreements with Plains were terminated. The Company’s new agreement with Plains requires that it makes available 50,000 barrels of crude oil per day until the date occurring ten years following the date service commences for ExxonMobil Oil Corporation (“Exxon”) pursuant to the transportation service agreement between Exxon and the Wink to Webster pipeline carrier (plus extensions for force majeure). If during the term of the agreement the Company fails to deliver the required quantities of oil for any month other than for specified force majeure events or acts or omissions of Plains, the Company has agreed to pay Plains a specified per barrel amount, subject to escalation, multiplied by the deficiency volume. If during the term of the agreement the Company fails to deliver the quantities of oil for any month that it has committed for such month other than for specified force majeure events or acts or omissions of Plains, the Company has agreed to pay Plains a deficiency payment . The Company has also dedicated certain crude oil production attributable to certain of its interests to Plains in connection with this agreement. Pricing for the Company’s production under the Plains agreement (i) prior to the date service commences for Exxon pursuant to the transportation service agreement between Exxon and the Wink to Webster pipeline carrier, is at a Midland WTI or WTL, as applicable, base price less certain costs and (ii) following the date service commences for Exxon pursuant to the transportation service agreement between Exxon and the Wink to Webster pipeline carrier, for volumes up to 100,000 barrels of crude oil per day, is at a MEH WTI or WTL base price, as applicable, less certain costs.

Agreement with Shell Trading (USA) Company

In December 2018, the Company entered into an oil purchase agreement with Shell Trading (USA) Company (“Shell”) which was amended and restated in December 2019, in which Shell agreed to transport crude oil it purchases from us through the EPIC pipeline, with which the Company has an agreement for the transportation of certain crude oil. The Company’s agreement with Shell provides for different purchase obligations during the pre-commencement and service commencement periods for the EPIC pipeline, and provides for a three-year term beginning on the service commencement date for the EPIC pipeline. Shell has the option to extend its purchase obligations for up to three one-year terms, but not beyond March 31, 2026 except in the event of force majeure. The Company’s delivery obligation (i) prior to the full service commencement of the EPIC pipeline will be, subject to certain conditions, including the Company’s right to repurchase certain volumes, either 30,000 or 40,000 barrels of crude oil per day and (ii) during the full service term will not exceed 50,000 barrels of crude oil per day. In addition, the Company’s wholly-owned subsidiary Energen Resources has signed an agreement with Shell in which all or a portion of the 50,000 barrels of crude oil per day referenced in the previous sentence could also be satisfied by Energen Resources. During different pre-commencement periods, Shell has agreed to pay the Company the price per barrel of oil based on the arithmetic average of the daily settlement price for the “Light Sweet Crude Oil” Prompt Month future contracts reported by the NYMEX over the applicable one-month period, subject to certain adjustments, plus a Corpus Christi differential determined based on Shell’s average sales price for its WTI barrels in Corpus Christi less certain other costs, expenses and fees. During the full service term, the price per barrel of oil payable by Shell to the Company is based on calendar dated Brent pricing plus a negotiated differential generally based on certain Argus WTI Houston CIF Rotterdam and Platts Midland DAP Rotterdam pricing, less certain adjustments.

Agreement with Vitol Inc.

On October 18, 2018, the Company entered into an agreement with Vitol to, among other things, sell an average of 23,750 barrels of crude oil per day plus other agreed upon volumes. The Company is continuing to sell crude to Vitol on a month-to-month basis and expects to continue to do so under its existing arrangement with Vitol until its new agreement with Vitol becomes effective. Under the Company’s new agreement with Vitol, the Company agreed to sell, and Vitol agreed to purchase, (i) subject to certain conditions, including accelerated commissioning service on the Gray Oak pipeline and completion of certain infrastructure connections, 50,000 barrels of crude oil per day on average during each month occurring during the first seven years of full service on the Gray Oak pipeline, (ii) subject to certain conditions and the satisfaction of other conditions, including full service on the Gray Oak pipeline and completion of certain infrastructure connections, an additional 50,000 barrels of crude oil per day on average during each month occurring during the first seven years following satisfaction of such conditions, (iii) subject to certain conditions, including notice that transportation services on the EPIC pipeline are ready to commence and completion of certain infrastructure connections, an additional 50,000 barrels of crude oil per day on average during each month occurring during the first seven years following satisfaction of such conditions and (iv) such other volumes of crude oil as agreed by the parties. The Company is entitled to receive payment for such crude oil under netback pricing, whereby the price for the Company’s crude oil is determined based on a formula which takes into consideration the final purchase price obtained by Vitol in marketing such crude oil in certain third party transactions less certain costs. In connection therewith, Vitol has agreed to,

among other things, use commercially reasonable efforts to (i) maximize the final purchase price to the Company and mitigate any costs factored into the price determination and (ii) acquire third party crude oil to cover any shortfall below the Company’s volumes commitments. Vitol also agrees to (i) use the same care and apply the same policies as it would exercise and apply if it were trading the subject crude oil for Vitol’s own account and (ii) transport such crude oil on certain designated pipelines, including the Gray Oak pipeline pursuant to rights we have obtained through our Gray Oak transportation services agreement described below under third party shipper rights or term assignments, as applicable, prior to Vitol’s downstream marketing activities.

Transportation Services Agreement with Gray Oak Pipeline, LLC

Pursuant to an addendum, dated as of August 13, 2018, to the transportation services agreement with Gray Oak Pipeline, LLC, dated as of April 23, 2018 (the “Gray Oak TSA 1”), Diamondback E&P LLC agreed to accelerated commissioning service (“ACS”) on the Gray Oak pipeline in the amount of 50,000 barrels of crude oil per day. Under the ACS program, shippers must make a deficiency payment for any barrels not shipped during the ACS term, which expires the day before the Gray Oak pipeline goes into full service, which is currently anticipated to occur in the second quarter of 2020. The ACS commenced on November 12, 2019 and is ongoing. Due to restrictive API gravity provisions and the lack of markets, Diamondback E&P LLC has been unable to ship any volumes over the Gray Oak pipeline since the inception of ACS. This has resulted in Diamondback E&P LLC owing deficiency payments to Gray Oak Pipeline, LLC during 2019 in the aggregate amount of $11 million. The deficiency payment rate varies depending upon the month in which the deficiency occurs. Certain deficiencies can be used as a credit against volumes shipped in excess of a customer’s minimum contract volume each quarter during the first two years of full service on the Gray Oak pipeline, subject to certain restrictions.

Once full service commences on the Gray Oak pipeline, subject to the terms and conditions of the Gray Oak TSA 1, Diamondback E&P LLC will be required to ship 50,000 barrels per day of crude oil on the Gray Oak pipeline or pay a deficiency payment for any shortfall in volumes as measured on a quarterly basis. Such deficiency payments can be used as a credit against future shipments in excess of our minimum contract volume each quarter, subject to certain restrictions.

Defined contribution plan

The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all employees at their date of hire. The plan allows eligible employees to contribute up to 100% of their annual compensation, not to exceed annual limits established by the federal government. The Company makes matching contributions of up to 6% of an employee’s compensation and may make additional discretionary contributions for eligible employees. Employer contributions vest immediately. For the years ended December 31, 2019, 2018 and 2017 the Company paid $8 million, $2 million and $2 million, respectively, in contributions to the plan.